Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Monday, August 7, 2017

Do Price-Matching Guarantees with Markups Facilitate Tacit Collusion? Theory and Experiment

Andreas Pollak asks Do Price-Matching Guarantees with Markups Facilitate Tacit Collusion? Theory and Experiment.

ABSTRACT: This paper studies how competitive prices are affected by price-matching guarantees allowing for markups on the lowest competing price. This new type of low-price guarantee was recently introduced in the German retail gasoline market. Using a sequential Hotelling model, we show that such guarantees, similar to perfect price-matching guarantees, can induce collusive prices. In particular, this occurs if the first mover provides a price guarantee with a markup which is below a threshold value. In these cases, prices are on average set at the monopoly level. A laboratory experiment supports the theoretical predictions.

http://lawprofessors.typepad.com/antitrustprof_blog/2017/08/do-price-matching-guarantees-with-markups-facilitate-tacit-collusion-theory-and-experiment.html

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